Econometric Models Used in the Analysis of the Informal Economy at the Regional Level

Abstract

The disintegration of planned economies and the first elements of the market economy have resulted in a new attitude from some companies to transfer their activities to the informal economy. Assessing the probability that a company decides to conduct an economic activity can be done based on the application of the logit and probit econometric models. A series of data for different latent variables should be known for their implementation. This paper presents a number of problems related to the application of these models at the level of economic regions. Binary models are recommended because of a number of variables such as: the size of the informal economy at the level of a company, the size of unpaid taxes and duties due to their activities in the informal economy, which are not known in official statistics. These variables can be substituted to some extent by the latent variables for which data series are known.

Keywords: informal economy, econometric models, logit, probit